Bloomberg News

Lending in Germany May Shrink Next Year Amid Crisis, KfW Says

December 12, 2011

Dec. 12 (Bloomberg) -- KfW Group, Germany’s state-owned development bank, said new lending is likely to slow next year as companies pare investment amid a weakening economy, tougher regulation and the sovereign-debt crisis.

“The situation remains stable for now, but we expect a slowdown in new credit business in 2012,” KfW Chief Economist Norbert Irsch said in an e-mailed statement today. “Banks’ credit supply is suffering from stricter regulatory requirements and refinancing difficulties.”

European Union banks must raise 114.7 billion euros ($152.8 billion) in fresh capital as part of measures to tackle the region’s debt crisis, the European Banking Authority said last week. Banks have pledged to cut assets and retain earnings to avoid government aid, raising concern they may cut lending to meet the new capital requirements and hurt economic growth.

New credit to companies and the self-employed shrank 0.8 percent in the third quarter from the year-earlier period, KfW said. The decline was less than the 5 percent seen in the second quarter. The European Central Bank last week coupled an interest-rate cut with a pledge to offer banks unlimited cash for three years in an effort to avert a liquidity crisis.

“How much worse companies’ access to credit becomes depends particularly on the further development of the euro and sovereign-debt crisis,” Irsch said. The EBA stress-test results will likely hurt German banks’ credit supply, though the ECB’s action should help, he said.

--Editors: Keith Campbell, Steve Bailey.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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